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January 31, 2013

REIT Outperformance to Continue in 2013

If you’re looking for yield, non-traded REITs can help

Will the incredible outperformance of the REIT industry ever subside?

Despite a residential real estate market that has been struggling since the crash of 2008, real estate investment trusts (REITs) have defied cynics (and logic) and trounced the performance of the broader market.

“In 2013, we think we will continue to see improving economic fundamentals that help drive real estate performance,” Brackston Helms, senior vice president of national accounts with CNL Securities Corp., told AdvisorOne at FSI’s 2013 OneVoice conference in San Diego on Tuesday.

He explained that non-traded REITs are an institutional class investment that is experiencing an interesting time.

Non-traded REITs are an alternative yield investment, Helms added, which can be of value in an artificially suppressed interest rate environment where yield is low or nonexistent.

“Where someone like my dad can get yield,” he quipped.

Alternative investment markets have a strong interest in health care facilities at the moment, fueled by demographic support from baby boomers. Helm’s firm sponsors CNL Healthcare Properties which announced on January 10 that it has acquired 10 senior living communities through two separate transactions totaling $158.2 million. The purchases add a combined 671 senior living units to CNL Healthcare Properties’ portfolio.

Construction of new senior living facilities continues to trail the growth of America’s senior population, according to the National Investment Center for Seniors & Housing Research, setting up an attractive supply-demand dynamic.

“If you think about areas of the economy that are more insulated and not as affected by downturns, health care is definitely one,” he noted.

“Everyone at this event is looking for yield and as a result, looking closely at alternative investments. Non-traded REITs are an asset class with low correlation and provide another way to get yield,” Helms concluded.

“Even with variable annuities in their accounts, investors are no longer going for the guarantees; instead they are using alternatives as a diversification tool.